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Funding for productive industries

 

The Industrial Development Corporation's agro-industries strategic business unit supports a wide range of food and other production activities in the agricultural value chain, but its key focus is on labour-intensive projects with a strong black economic empowerment component.

The unit's mandate is to increase South Africa's industrialisation by driving international expansion and exports, mitigate reliance on imports, adding value to the local supply chain, developing new agricultural industries and increasing black ownership and participation.

To this end, the unit now has more than R4.6-billion invested in 115 projects across the country and outside its borders. These investments are in food and non-food agro-processing projects — either on-farm or third-party packing and sorting facilities — as well as backward-integrated agro-processing projects, beverages and aquaculture.

Apart from the condition that projects operate in secondary agriculture (the processing, not growing, of produce), the main selection criteria are job creation, empowerment and a requirement for at least R1-million in funding. This has to be supported by a comprehensive business plan that shows profitability and sustainability.

The agro-industries unit is unlikely to fund more than 60% of the project's total funding requirement and will always do so on condition of project partners also committing funding on a risk-sharing basis.

Although loan funding is the preferred support mechanism, the unit does consider taking equity if the project is of strategic importance. There is no upper limit to funding that could be provided, but all projects are expected to need at least R1-million in debt funding or R5-million in equity-related funding.

The thresholds for development projects in the rest of Africa vary slightly from local applications. The minimum project size in Southern African Customs Union countries is R5-million. In countries in the Southern African Development Community that figure climbs to $3-million and up to $10-million for those outside SADC. The selection criteria are much more onerous for these types of projects because they are required not only to facilitate the development of new industrial capacity, but must be of direct benefit to South Africa in the form of exports of capital goods, extension of the supply chain or ownership of these projects.

The agro-industries unit draws on a number of general internal funds or schemes dedicated to developing the agro-processing capacity in South Africa. Among the agro-specific funds are the agro-processing linkage scheme and the agro-processing competitiveness scheme, which are designed to boost the capacity and competitiveness of the smaller industry players.

The former is a R100-million fund funnelled through the agro-processors to small-scale, resource-poor farmers so that they can gear up to feed raw materials into the supply chain. The competitiveness scheme is a R250-million fund that aims to support non-dominant players with loans of between R250 000 and R30-million to improve their ability to compete.

The generic IDC funds used by the agro-industries unit include the R10-billion Gro-E scheme that provides financial support to start-up businesses and companies that wish to expand — and create jobs.

This broad scheme can be applied to a wide variety of projects and industries and is used to develop capacity directly in the agro-processing sector, or in sectors that feed into it. They include projects as diverse as bio-fuels, or hemp production for supplying the clothing and textiles sector.

Funding of between R1-million and R1-billion is available under the Gro-E scheme and is subject to the usual criteria of economic viability and black ownership or economic empowerment credentials.

The IDC's R2-billion Unemployment Insurance Fund job creation fund is another mechanism applied in the agro-processing unit's work. This general fund aims to create and save jobs and is available to start-up and expanding businesses that require funding up to a maximum of R100-million.

The transformation and entrepreneurship scheme is another general fund that aims to disburse R1-billion through specialised funds, including funds for women entrepreneurs, people with disabilities, equity contribution, worker development and the community.

The scope of these funds creates tremendous leeway for the agro-industries unit to apply this scheme in concert with its other schemes and funds to ensure maximum impact in high job-creation projects.

The one other area in which the IDC has been able to lend its financial muscle is through providing R250-million in distress relief funding to farmers hit by floods or drought during the 2010-2011 financial year. This money has been allocated to the Land Bank for disbursement to farmers needing an injection of working capital, to make infrastructure repairs or replace uninsured assets.

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